It is common for entrepreneurs to consider a number of ways to start a small business, including buying a franchise. What is a franchise, though?
And what are the pros and cons of running one as opposed to starting your own independent small business?
Here are some helpful tips to help you decide if buying a franchise is right for you
What is a franchise?
A franchise is a branch of an existing company and brand. Buying a franchise allows you to license the company’s name, associated trademarks and operating structure. This means you do not have to sort out the basics for your business. Instead, everything from your employee contracts to your colour scheme will be provided to you.
What does a franchise cost?
Given how much is provided to you by the parent company, it should come as no surprise that there are significant costs attached to buying a franchise.
First, there is the initial franchise fee. This is a one-time payment that secures your right to operate the franchise.
In addition to the initial fee, you will be required to pay a percentage of all your profits to your parent company. This payment allows you to continue using the franchise’s name, logo and other materials.
Finally, there may be times when the parent company changes its appearance or operating procedures. If this occurs, you may be required to pay for renovations or improvements.
As with any business relationship, it is vital to know what you are agreeing to. That is why you should alway have a small business lawyer read over the contract when buying a franchise.
There are significant pros and cons to weigh if you are considering buying a franchise:
The pros of buying a franchise
- You are coming into an existing brand, so do not have to dedicate the same time and energy to customer acquisition.
- Any positive feelings about the brand carry over onto your business.
- You have operational support and structure from day one.
- You are working with a proven business model.
- The company’s track record can help you get financing.
- You have a community around you. Depending on the franchise, there may even be training opportunities available.
The cons of buying a franchise
- The initial costs are often higher than they are to start an independent business.
- Any negative feelings about the brand carry over onto your business.
- You do not get to choose the appearance of your business.
- You have to pay a percentage of your profits to your parent company.
- The rules, regulations, and operating procedures from the parent company can feel constraining.
If you are buying a franchise, it is important to find the right fit for you. Make sure you take the time to research a number of companies before making a final decision.
Not sure if buying a franchise is right for you, but you do not want to start a business from scratch? You may want to consider purchasing an existing business.
No matter which path you chose, make sure you launch your business on the right foot by consulting with a small business lawyer.